a16z Podcast - a16z Podcast: Pricing, Pricing, Pricing

Episode Date: August 14, 2016

"Raise prices." Regular listeners of our podcast have heard this advice more than once. But why is this so key and yet so hard for many technical founders? And how should startups go about raising prices -- or more specifically, creating value -- for their products? In this episode of the a16z Podcast, former sales VP Mark Cranney (and head of a16z's EBC and go-to-market practice for startups) and former startup founder (and general partner focused on all things infrastructure) Martin Casado talk to managing partner Scott Kupor about pricing for startups ... especially for category-creating businesses. It's not all "pricing, pricing, pricing" though -- there's another important "p" in there too!

Hi everyone, welcome to the A6 and Z podcast. I'm Sonal. Regular listeners of the podcast have probably heard us say, more than once, that entrepreneurs should raise prices. Why? And the other question that comes up often is how. On this episode of the A6 and Z podcast, we talk all about pricing, packaging, and more. Joining the conversation, our general partner, Martin Casado, who was formerly the co-founder and CTO of Nisera, which was later acquired by VMware, and most recently he served as a general manager, for one of their major business units. Also joining is Mark Cranny, who heads up our go-to-market practice and our EBC or Executive Briefing Center, and he was a former VP of sales. And moderating the podcast is managing partner, Scott Cooper. Hello, everybody.

This is Scott Cooper. I'm here with Martine and Mark. And we are here to talk about pricing. One of the reasons that this podcast in general is so important is I think that pricing is one of the least intuitive things for technical founders, having been one. It certainly was my bias, you know, coming out of, like, PhD and doing a technical startup that you almost always want to like take whatever your

technologies and get into everybody's hands. And then you kind of assume later on that like you can somehow monetize it. Ben Horv's on my board at the time. And I was explaining, I was like, well, I think that we should kind of enter at a very low price. And that way we'll have more people that use it. And he looks at me. It was a very stern look. And he says, I want you to be very careful because no single decision will impact the valuation of your company more than the decision you're about to make on pricing. And so that kind of started my foray into pricing. As long as you've got the mic, I mean, let's start there. So what's wrong with that? So why not be cheap? And then why can't you just raise prices later? What's the problem?

So there's an interesting thing, especially if you're dealing with pre-casm type markets. So pre-casm, I mean, you're bringing a product to market where there isn't a market yet or the market's very immature, right? So there may not be a budget. There may not be a buyer. They may not know how to think about it. And so here's the fallacy that many technical founders have and I had as well. I think if you build technology, there's intrinsic value to it. This is worth so much money because it's intrinsically valuable. And that's not generally what happens. What happens just in human psychology is actually, like, will set the value on whatever they're getting based on how they acquired it. And so in early markets, nobody really knows how to value what you have. And so it's

very important for you to establish the value in the market. Otherwise, you end up devaluing yourself right away. And you've just cannibalized your top line revenue almost immediately. The scenario you described to begin with is extremely common, and the reason it's common over and above what you've outlined is, in a lot of cases, that technical founder has not putting themselves in the buyer's shoes to understand what that prospective buyer needs to go through. Because like you described, they don't know what the criteria is and how they should look and or evaluate your solution. They might not even know it's a solution because they don't know there's a problem. That's kind of the job of sales and marketing is to go put yourself in that buyer's shoes, understand what their as is environment is, answer those questions along that sales process of why should I even do anything to even evaluate you or look at you. and then why you and then why now. The why now piece is the piece that where the pricing really starts to come into play.

And that's where you've actually gotten enough information out to understand what their return would be, what an ROI would be. And if I can't go show what that value is and not have that deep information about what that prospects costs are going to be or what my impact of their business is going to be, then yeah, it's easy to say, I'll give it away for you to free and we'll monetize later. So that's where that comes from, that natural inclination to, to, I'll figure this out later. Mark, so you're kind of describing kind of value-based pricing, right? So does that mean in those early days then that you kind of iterate on the pricing with the customer? Or are you suggesting that people do that analysis and then present that to, you know, the customers or is it really just iterative? Well, I mean, a lot of it depends on what exactly your, you know, what is your value proposition? If there's some kind of standards that are out there and the customers used to,

acquiring a solution, you know, and your your solution is going to be similar. There's models you can bounce off as far as what's going on in the as-is world. What Martin's talking about, what he was doing was so transformational, it was hard for a customer or a prospect to get their arms around. And Martine maybe didn't have enough of, you know, the as-is just intuitively, having been in these larger environments to really, you know, early on understand what that would mean. And there's a long development cycle before that value would even be delivered, right? So the value-based pricing, I think, is for sure true. But part of it, you just, you've got to go through the whole, you know, a whole sales process before you can start

to get comfortable and have pricing control. Fast forward a little bit, you know, where you've gotten, or you're down the path of getting product market fit, or you're, you're beyond that. that, you know, I see a lot of entrepreneurs that kind of get stuck in the mud on their pricing or they've gone in too low. They're not sure how to go start to raise pricing. A lot of that is more in the packaging. What is your roadmap? You know, what sets of functionality or has the prospect or the customer already realized value from? And then where you go with the product, is that something you want to just charge the same price for or do you need to start chunking that up? Because they might be buying different ways.

The customer or the prospects asking for additional, you know, features and functionality or scalability or architecture from a, well, that shouldn't be the same price. So I need a different type of packaging and a different pricing model to go build on that. And then there's the option of like, I want to start all a cart versus, you know, in a package all at once. You know, some customers might not need the whole product when you're first starting out or they don't need an user or work group setting.

but the enterprise as they adopt will. So you're holding some functionality back and waiting for them to want that and then go establish that value to do it. But totally understand where Martinez coming from early on because I see it over and over and over again. And it is in a lot of cases the value of the sales force. The other thing I kind of I sensed in his initial answer was, you know, I don't want to go, you know, spend the time or the money. And a lot of that is putting the boots on the ground or, you know, inside.

in the marketing to go, you know, pay for that. But you're paying for it either way, right? You're paying for it by giving everything away for free because you're not investing in sales and marketing or you're going to have a channel partner do it, which you're giving your margin away. Somebody's paying for it. And if it's something that's just so new and differentiated and not defined and it's going to require a, you know, the customer or somebody's got to go in there and kind of really tease out, how are you doing things now? What is the pain? they don't know there's a better way of doing it. That's kind of our job as entrepreneurs and or as a sales and marketing organization to be the translator between the, you know, kind of the old world and the new world.

And that's where you start to understand, you know, how to piece this thing together from a value-based standpoint. I think you can roughly, like, dissect the world into into two pieces. You've got, you know, market category creation, your constituency, whatever they are, they wake up in the morning and they think about everything but not your thing, right? So, like, it's not even something that, like, they consider. And there's mature markets where you're entering an existing market where pricing has already been set through, you know, a lot of transactions that have happened. And so, and I think in the kind of post-casm of mature market world, I think that there is existing pricing. There are comparables that you can work. But in the in the pre-casm world, the thing doesn't even exist.

So, like, not only you're describing that your thing exists, but you're actually trying to attach a value to it. I've gotten so many times the question, it's like, okay, so how do you set that initial price? You get a lot of these PMM types. They want to go do this market research and like all this stuff. But it's very difficult to do research on something that doesn't exist. You know, I mean, if you think about a lot of pre-casm work from the technical side, you're really being prescriptive. Like, you're not really asking the customer what they want. So here's my experience, you know, over a couple of products.

The only way I've been able to establish pricing in a pre-casm market is you start pretty high and then you let the salespeople shake it out. You've got really, really good salespeople that go in there, have the dialogue, have the discussion. understand it. And it's this really iterative process where you've got the sales guys piped into the nervous system of the product development side. And then you get a sense for kind of what the market will bear. I don't think you can have, you know, a bunch of MBAs out there doing research because this is so new. And so I don't know, Mark, like this is something you've done a lot of. I'd love to know your thoughts on that. Well, I definitely agree with the start high. It's way easier to go down than it is to go up. When you talk about pre-CAS, I mean, the first thing

we want to do is really segment and target and get to those point-of-the-spear-type process. aspects, they're going to be quicker to understand that there's probably a better way and maybe you've gone down that, build it yourself type path, where they've got the recognition that there is another way. That's where, I mean, kind of one of the first places to start from a segmentation and targeting. They're going to be those early type customers as you're going through that product market fit where you need to be able to understand what it could mean financially and to also partner with them on what that pricing could be because they're the ones that are going to, you're going to get the most information and input as far as what the value is going to be.

And it's always going to be involving. From a pricing standpoint, some cases we may be lowering the price of like the foundational piece of our technology because the market's changing, right? Things are going to get more commoditized, but we're racing upstack and charging for new things that are more valuable. So, I mean, if you think about the whole life cycle of pricing, you know, in a lot of tech companies, it's not just where it starts. It's something you're constantly should be looking at.

So just to put some meat on the bones then, so we're saying, look, start high, you know, to Mark's point, we just look, it's always easier to go down. It is an iterative process, but within that context, there is some framework for how to evaluate the value-based pricing, right? So in the NCRA case, presumably, there are things that engineers can now do in terms of changes to the network that they couldn't have done before, and that has demonstrable business value, or there's either fewer resources that are required. There's some kind of framework where we can begin to work with the customer to say, hey,

the value that you would get in the organization, either in headcount cost reduction or flexibility or new product rollouts or other things equates to some portion of that being captured through the software. Well, one thing maybe to keep in mind is from a pricing standpoint, you know, if you think about a large enterprise, if you break the audiences down, you know, the pricing to like a user, like say in Martin's case, you know, like the early people, he was probably talking to network engineers, that kind of intel is going to be completely. different than if you're up at the top of an organization with the CXO that has a wider view and, you know, is going to understand a bigger story. And, and they're also going to understand, you know, when you get into headcount reduction or you get into, you know, different types of ROI type modeling, you know, what you're getting credit for around productivity from a financial standpoint or a pricing or a value standpoint is going to be completely different with mid-level managers across multiple functions all the way up to a CXO with higher-level

initiatives. So that's something that made a first-time founder that hasn't had to go through that whole process is not going to be intuitive right off the bat. Just to add to that, I think it's just really seductive to think that, like, oh, you know, I'm like I'm an analytical person. And so I can do some basic research. And like, based on my research sitting in my, you know, offices in San Francisco, I know how to set the pricing because I've got comparables. And and yada, yada, yada. Yeah, I have my buddies, too. They'll tell me.

That's right. I can talk to my friends. They'll tell me, like. It's not a bubble. I mean, no, there's not a little bubble out here. I mean, everybody should be like this, right? And that's actually kind of where I was initially. Seriously, like, I am such a convert for a couple of reasons.

One of them is like, the value of a sales team is certainly to sell and bring in a number. But in my experience, when it comes to setting pricing and to understanding what the market will bear, like, there's nothing that can do it except for sales. Like, this is just my experience. It's not market research. It's not marketing. It's not the entrepreneur. I don't believe if you're doing real category creation, you can just build an ROI tool. I don't think it's that simple.

Depending on who you talk to in the organization, you're going to get like different understandings of what the value actually is. You know, some people aren't going to want to be held to that ROI, right? They're taking a risk. You know, as you go up in the organization, they're going to want a bigger potential return for making this type of a bet. And the risk profiles are going to be completely different as well. Yeah.

And I think something that entrepreneurs underestimate is large companies, appetite to learn from startups very often in a hot area, say AI or deep learning, you'll have these like really smart entrepreneurs that have done the PhD. Maybe they just peeled out of Google or something. Companies will pay to engage with them. Like they may pay 100K or 200K for a Pock. And so the entrepreneurs are like, I've got product market fit. You know, these guys are talking to me the pricing set. But the reality is that it makes total sense for the company to do this and to learn from them. And so, I mean, one thing I really learned to appreciate about, you know, setting pricing aggressively early on is you start to get real market feedback.

You can't deluge yourself anymore. People aren't buying it to learn about it. They aren't doing this because you're super charismatic. You get real signals. And the reality is early on in a company's life cycle, you really can only take on so many customers anyways. Setting pricing high really helps that. Fast forward a little bit.

Let's assume we're getting past pox in our first five, 10, 20 customers. But, you know, I see a lot of situations that we're going to. getting stuck in the mud with a lot of companies. The reason they get stuck in the mud, particularly dealing with these bigger companies, is a lot of earlier stage companies, they haven't thought through what the rest of that deal is going to look like if it expanded throughout the entire environment. I see it time and time again, and I constantly press, I said, look, you've, in almost any proposal type situation, we wanted to have not only your initial pricing per unit set, but you need to go model and understand what would happen if that, you'd

customer adopted throughout their entire enterprise. Now, early on, it sounds like a pipe dream and oh my gosh, I can't think that far ahead. But you've got to go literally kind of model these things up because that's what the customer is going to be asking themselves. All right, if I do this proof of concept for 100 nodes or 100 users, but I have 100,000 in my environment, nodes or users or whatever the model is, they're going to be thinking ahead because they've been through this game before. So when you're starting that quote process to take a lot of friction out of the whole buying and selling process, to be able to kind of give them, you know, in the quotes, here's what the small deal would look like to get started. Here's what a medium-sized deal

would multi-bU. And then here's what a large deal would look like. You know, I've technically validated. I know I can scale. I know I've got the architecture or whatever. And I know I've got the security and things. But I also, I can actually back that up from a, you know, business case standpoint. You've been talking about pricing, which is great, but there's organizational issues, obviously that are incredibly important in selling. Different models, right? I'm replacing something that's been on-prem. Now we're offering SaaS. It's two different time. I mean, it's different accounting. We're accounting for things different. In the old way, I capitalized it in the new way, it's coming out operating. And so that slows people down in a lot of

case, just from just financial chops standpoint and dealing with a customer, and it changes the budget. The other thing that's different is, I mean, that might have been centralized before with, you know, IT, but the whole world's changing because it's a line of business type sell. People get stuck in the mud all the time. I think it's really worth underscoring the point Mark is making, which is like you work so hard in a startup, like moving the ball an inch that often you don't really consider like the macro success scenario. I would go in and think, oh, boy, wouldn't it be great to get to the park? Wouldn't it be great to get to the initial sale? But in the reality, they're trying to evaluate the full-on risk, which assumes that they like the technology and they're going to adopt it, which means they're thinking all the way through it. And so if you don't walk in, having thought through what would it mean in the full success scenario, it's much more difficult to have the conversation. And this is a trap, I think, entrepreneurs fall in all the time, not just in sales, but generally just trying to be incremental in the way that they build things. That kind of goes into, it's a competence and a confidence type situation as well.

I might have technical competence around, you know, whatever my solution is, but I don't have that customer knowledge competence. In a lot of cases, we're trying to just throw a number out there because we don't have any data for that number. We don't have any confidence in what it's costing them or what it would mean to them from, you know, from a transformative standpoint. So we're kind of guessing. And some of that might just be a lack of knowledge and or lack of willingness to go invest in, you know, the people and the processes that would, you know, be able to bring that to you. But you see it even with companies that do have sales and marketing organizations. And, you know, so I'd be a little careful to say any, any sales and or marketer is going to

be able to figure this thing out for me. Because, you know, it does take somebody that's little more intuitive that isn't taking shortcuts, you know, somebody that wants to go understand and create the value. I've actually found, you know, roughly two types of salespeople that roughly align with the maturity of the market. In a mature market, the customer's already educated. So, like, the type of salesperson excels in that environment is very different different than in the early days. I actually think that the actual competency of the salesperson depends on the size of the market. I mean, different salespeople are optimized for different types of markets. I totally agree. One trap, a lot of CEOs or founders might fall into here is I'm

going to go hire somebody that's selling something similar to what I sell. And if the problem with that, like in your case, if I want to go, you know, just all hiring all network guys, I remember I probably screamed at you and. Oh, you did. I remember the CEO back then. I remember the conversation. It was, you know, sometimes they're already native and what you were doing and in a lot of cases, what other technical founders are doing is so transformational that you're not even able to sell that salesperson end or those teams in a lot of cases because they're not even going to believe it themselves. Yeah, but not only that. I mean, this is this is something that you told me, which is, listen, you can't take someone that's selling into a mature market and put

them in an immature market. Here's the big trap that, and I totally fell into this. And I think a lot of first time founders fall into is often the mature market salesperson is really compelling. Yeah, I, and I just And I probably might have gotten a little violent. I apologize. Because five, six years later, I'll apologize now. Because you've changed so much between. I've changed so much. I've gotten worse.

The problem, like, you've really got to go find somebody that really enjoys, has that intellectual curiosity and that deep understanding of the, you know, the customer and or will tease that out. Somebody that gets excited about doing this exact thing, it's typically not the one that's been running in somebody's playbook. It's the one that really understands how to go create that playbook from scratch. Somebody that gets excited about this that can with the founder and the technical vision, they can go map up to that and translate that to, wow, that could be really transformational. That person that can take you to those early potential targets

and prospects, turn them into customers, learn, stop, put the recipe, you know, take the Make it repeatable. Turn that into a playbook. Make that scalable. You can't move it out of the lab, you know, into production unless you're pretty damn. Yeah. You're pretty sure, right? That's a different, that's a whole different profile than, you know, grabbing someone off the shelf that, you know, has been on a route sell for their whole career. So much of the early customer engagement should be like figuring out the product market fit. And so you really want market feedback that you can use. And if you have some, that like, you know, every meeting is a good meeting and they're using relationships and that. I don't think you get real feedback from the market. But if you've got like a good hunter that's looking for the real opportunity and the large deal and we'll fight for it, I think that the business gets that feedback. So I think it's so critical to hire the right type of salesperson early on. So talk more about packaging, you know, how do people think about new functionality?

How do they think about upgrades, the existing functionality? How does all that play into it? It depends on what we're kind of product we're talking about. But is that customer early on going to need everything that's in the product the way it's packaged? Or in some cases, let's say there's three buckets of functionality. But in a lot of cases, depending on the user, maybe some buyers only need one. But as it expands, they're going to need two and or maybe eventually they'll need all three. So should we chunk that up to make it easier for them to get started, even though they don't need it, the other functionality, or they don't recognize that need? yet. So there's, you know, so maybe we should have three prices for, for an all-a-cart-type version.

And then maybe we have a package if they get it all up front. But then the other thing is, let's take the product roadmap and let's look ahead. Let's take the feedback we're getting from the market, understanding what's coming down the pike or what we're thinking about building. And I think this needs to be a closed-loop process from the field with product development as you mature, your product management and product marketing, all these groups need to be working together and kind of challenging each other. Is this something that should be added? Is this something the customer is going to get value out of that we should be charging for because we can put an ROI to it? And we can make it easier to buy early on and they can grow into it later on with

the packaging and or different options. The other thing is that one solution in one vertical and or use case could, from a pricing standpoint or a value standpoint, can be completely different in another. So you've got to kind of balance those types of things from a value-based standpoint. You've got to have the knobs just ready to crank. I think a lot of companies wait too long and or they drop the ball on it. So you're doing your company, you're creating your product, you know, you've set your pricing pretty aggressively. You've established a price in the market. You're very happy, but you've probably necessarily priced yourself out of some constituencies, right? So now you want to go ahead and expand your footprint. You maybe want to

go to like other areas or other verticals. And you know, you want to do this in a way where you maybe have tiered pricing, but the risk of tiered pricing is cannibalization. If you don't know you're going to do this beforehand, you may not have the flexibility to actually pull out independent bits of value. And so now you've got, you know, on one hand, either you cannibalize yourself with like an over-feature-rich product for the lower price, or you don't get sufficient market expansion because you've priced yourself out of it. And so, like, I think that absolutely right. Early on, you should make sure that you're thinking through how you can bifurcate this when you do your market expansion. Yeah, another good example on that is the, you know, those early

customers sometimes if you've really, if you've done a good job, you've got those early wins and you gave them a, the sweetheart, lighthouse type deal. You've really got to pay attention. to not just the pricing, but how you've gone and contracted. Because later on, I've seen that happen over and over again. The company's just kicking themselves in the tail because they really gave up the farm. Because some of this, you're right, is a product packaging issue. Have you literally sold everything that you will ever build in perpetuity to this customer? Right.

Let's go get those lighthouse customers, but let's put a fence around the quote unquote, the enterprise thing. And, you know, a lot of cases, it's just the startup. is marching up to this big bad wolf and come on in and, you know, I'll huff and puff and blow your house down. And guess what? These big companies know how to, uh, negotiate and contract. And they know every trick in the book. And we see some of these teams walk in with their junior varsity uniforms on and there's a lot of injuries that happens. So you really got to be careful. So how do you solve that? I mean, you know, get some help, you know, make sure you get the right advisors helping you. I mean, I think it's important people understand how to

this all is because many large companies have outreach programs to start up. So like if you engage with a, you know, a finance company, like a large bank, they'll be like, listen, we work startups all the time. They have whole groups that take these things and pock them. That, in my experience, never actually makes its way over to the procurement office. So while they're great at, you know, engaging with you, lightweight process, pocking, finding value, you meet the technical teams, you even have a deployment scoped out and a professional procurement person in the room. And if you don't know what you're doing, I mean, I've been in multiple situations. We're very close to basically giving site licenses to like 100,000 person organizations for almost no pricing.

And this is when, again, Mark comes in and kind of sets us straight. But it's very, very important to be sure you know for every one of these large deals, which are pretty out there in a forest, but you will get eaten if you're there after dark. This is all good advice. But so what, how do you fix problems or fix mistakes? What if we've gone out and we have priced too low? Or what if we've, you know, discovered that we essentially haven't ring fenced people and we've given them stuff? How do you approach that problem? How do you think about it? Are there things, at least, you know, in retrospect, companies can do to kind of write the ship in those scenarios? Yeah, I mean, it's really, I mean, it's case specific. A lot of it is in the language of the agreement that you've done. I mean, if you're doing, you know, if you're doing term, you know, term licensing or subscription type deals that, you know, that's different than a per, you know, perpetual. That's another piece on this contractual thing. The buyers, you know, are saying, we're going to do it on our paper and and that type of thing.

The startup, you know, doesn't have any paper. They don't even, I get these questions all the time. It's like, we're trying to figure out how to deal with these guys. And they're wanting us to mark up their SLAs and their MLAs and, you know, master license agreements and stuff like that. And, you know, we don't really know what to do. It's the reason you don't want to do is you haven't put the work in to kind of figure out what yours is going to be. So the ideal situation, as quick as you can, is you need to think this stuff through. And you need to have your language.

And look, early on, particularly even later on, when you're a big company, you're going to, you know, you're going to swap paper and everybody's going to mark it up. But I, you should know what you need in from a language standpoint to protect yourself. As far as redoing the deal, it's just customer or it's case specific. One thing I'd like to add, though, along those lines, though, on the product development side, if you think about this early enough and it doesn't have to be right at the onset, but as you, you, you, you grow the the product and the functionality out, from a product standpoint, or there's things I can kind of turn on and off to help me modularize. You want to think about how I can do that. And you get the bottoms up models, you know, there's a lot of nuance in that as well. And there's always the resistance and or in the DevOps type environment on the open source as you're moving up the stack to the, you know, the premium and or the enterprise type pricing and functionality and support that if you're not constantly understanding where you're at with the customers and or in the competition, a lot of cases, you're probably putting yourself at risk. So having on the product side be able to turn things on and off or to measure and monitor and be able to not only establish but measure that value over time. I see a lot of companies, even big mature companies, they've done all the upfront work. They go get the deal.

Everybody agreed on what the value is going to be. One of the most valuable things is to go back and validate that and put that into a case study. And the best place to sell something is where you've already sold something, right? So that constantly work with the customer and with the engineering and product development to kind of bring the best value to the customer and then measure it and make sure everybody's on the same page. And then, you know, that helps the next 10, 20, 100 customers come on board, too from a sureness standpoint. Scott, to your question about like setting pricing in the market, I mean, the bad news about setting pricing in a market is it was really hard and it takes a long time to actually set the price in the market. The good news is it takes a long time. So, you know, if you enter at too low over price point, like, it takes a long time for these things to solidify.

And so I do think that there are options to kind of raise price, you know, add differentiation based on functionality, especially early on in the product cycle. So it's not kind of like a misstep that you want to do. But if you do it, I do think there's a lot of time to correct it. I agree. I totally agree. There's going to be a lot of trial and error in that process. I want to touch on two other things quickly first. One is just so we've been talking about kind of initial pricing and packaging and stuff like that.

how do you think about kind of the ongoing process? So how often should CEOs and the VP of sales and the VP of product manager be thinking about when do I revisit pricing? You know, is it on a release basis? Is it new competitors enter the market? You know, what are the things that people should be thinking about that give them some guidance as to, you know, how often and how frequently you think about these types of things? I think it's almost constant. Again, a lot of it depends on the stage. But if you're not reviewing, you know, a win-loss type report on a monthly, at least a quarterly, you know, some kind of fairly frequent cadence depending on what's going on in your business and in the market.

And doing the postmortems on both sides of that, I think you're putting yourself to risk and mapping it up with where am I out with the product, where am I out with my customers? That whole roadmap discussion isn't just an internal discussion. That's something that you're constantly doing with your early customers that may be partway down the journey to fully deploy. your solution. You're able to check that from a pricing and functionality standpoint. Then what is the competitive dynamic and landscape look like? I might be getting, you know, pressure from below me. Maybe it's from the open source world or the homegrown. Maybe it's from lower end competitors that are just doing small, medium. And you're starting top down in the market, you know,

with the bigger companies. It may be from incumbents that are reacting and starting to, to understand that you're, you know, you've, you've done some damage to them and they might start being, they might be adjusting what they're doing. So a constant review, I think of that is, you know, and really a 360 type situation is something that should be pretty frequent. The other question I had was you guys have also hinted this a couple times, but the relation between the type of sales organization you can support and what kind of pricing you have out in the market, you know, and I don't know if there's any heuristics we can, we can give folks, but, you know, in order to be able to support, for example, a direct enterprise

selling effort, which requires, you know, a lot of, you know, high touch, there are probably certain ways you have to think about pricing and what your average selling prices and what you can get in an account versus obviously something that might be done through an inside sales organizations. So is that, is that something that kind of CEOs and, you know, VPs of sales and VPs of products need to think about from the very beginning, which is how does pricing relate to the actual mechanism by which I'm going to go to market and how should people think about that? Yeah, I think it's pricing, it's packaging, it's my, my product type strategy, if I'm going to be a bottoms up, I mean, it's going to start with,

you know, some marketing and, you know, a freemium to premium type model. And I'm going to work on that adoption and then convert them from freemium more to the premium. And later on, it'll be enterprise. Then that's a, because my transaction, my ASPs are going to be extremely small, then that's going to drive your go-to-market. A lot of it is product-related. If it's something that requires you to come in high and move left and right and be agile in organization as well as up and down. And because of the complexity, that typically means there's also going to be a big outlay, either capital and or operating. And that's probably going to require an outside direct sales force. The pricing better in the size of the deals are going to

have to map up to support that to go fund that. So you can't have a mismatch. In some cases, you're going to kind of have all, right? You're going to have that, you know, the ability to sell across all. And you might have to put in the layers of your go-to-market, you know, from a sales and on marketing standpoint to build that bottoms up, you know, maybe a mid-market type or commercial type teams and a more of the enterprise major account type, named account situations and different types of marketing to drive different types of penetration across the board. So, you know, it really hinges around the product.

And that also can hinge around what your product development strategy is and more what a competitive landscape might look like. I mean, I think of tons of examples. Yeah. Often in technical organizations, sales basically dominates like cost because it's a variable cost. You need more sales to bring in more money type thing where R&D is often more fixed. And the cost of like an ISR is going to be much less than a direct sales force, but only

certain types of products where markets are amenable to an inside sales model, right? Like if it's a very mature market, the customer's educated, it's probably more amenable than if it's something totally new. Also, if it doesn't require a lot of integration or isn't super technical or the products is made very simple to use, it's more amenable to an ISR. An ISR is an inside sales rep, which is basically someone on the phone, which will call rather than, you know, has a briefcase, you know, hops in an airplane. It's lower cost. What we've seen in our portfolio companies, a number of them is actually they'll experiment with both. So they'll start with ISR and a couple of field and they'll actually play with a model to understand what works best. especially if they're moving towards more non-traditional buyers for IT.

And so we've seen this in a number of companies. And they're able to determine over time which model is the most cost effective. Yeah, I also see in a lot of cases, you know, it starts one way and they wait too long to add the other layers in. So, I mean, it's very common on the inside type bottoms up motion, particularly as they build out the management that sometimes they'll miss moving up market because the BP might not have that skill set, you know, to go build out that next level. So that's something I think the first time CEOs need to understand and be questioning themselves and get help to question them. Am I slowing the whole company down because I've, you know, underhired? Again, it depends on the, you know, the stage of the company, but you should look at and calibrate and look at both, you know, what does an under versus an over provision look like and how much headroom am I going to have because you could damage yourself by waiting too long. So we're talking a lot about kind of first-time CEOs here, and let's just assume the product's not taking for some reason. It's not selling. We're missing our plan. As a CEO, how do you know whether you have a product problem, whether you have a problem with your sales team, whether you have a pricing problem, a packaging problem? How do you tease these things apart in a way that actually helps you think about ways to address issues like that?

The one bit of insider advice that I would give to, you know, first-time CEOs or entrepreneurs is it's really hard to find product market fit. And it's this. saga that can last for years. And, you know, you're going to doubt yourself and you're going to doubt the product and you're going to doubt the market and, you know, all sorts of different feedback. And especially if you're doing like serious category creation. I mean, it takes a long time for markets to mature. And markets mature at their own pace. So I don't have a simple answer for what to look for. But I do know that you have to be patient and you have to be persistent and you know it takes a while. And I also know, having seen it, once you hit the inflection, it's really obvious. Once, you know, you hit product market fit, you start to get more engagements than the

organization can handle and you can't scale enough. Mark, Martine, thank you for the time. It's time for us to wrap. So just to kind of capsulate what we talked about, you know, price early, price off. And this is definitely an end of a process. Get your sales guys in and the right sales guys, right, whether they're the kind of hunter or gatherer folks in early to help you with this process. And then, you know, kind of the important point that, you know, Mark always makes, which is you got to think about packaging, right? Don't give away basically, you know, the entire collection of stuff that you will build for the next 20 years to your first customer. So think about how to segment it, both in terms of users as well as features and functionality.

So lots of things for people to chew on here. And be aggressive with pricing. Be aggressive with pricing. That's right. Thank you. Thank you.